Texas-Sized Reform for Medicaid

October 9, 2015

The Texas Medicaid program is on an unsustainable trajectory. Steadily rising healthcare costs and growing enrollment mean that Medicaid is consuming an ever-growing share of the state budget. If no reforms are put in place to control spending growth, the Medicaid program will eventually crowd out other state spending priorities.

Because Medicaid is a jointly funded state-federal program and therefore subject to myriad federal rules and regulations, state lawmakers have few options for controlling costs and enacting reforms. They also have a strong disincentive to limit or reduce Medicaid spending.

Every state tax dollar spent on the program is matched, on average, by $1.50 of federal tax funds. This makes cutting the Medicaid budget politically difficult because to save $100 of state funds lawmakers just cut $250 from the program.

The program now consumes almost 25 percent of General Revenue appropriations, an increase of the share by 42 percent in just over a decade.

If the state enrolled high-risk members in subsidized private coverage, the savings to the state compared with the status quo would total $4 billion in 2015.

The annual cost savings to the Medicaid program under the reform model will be in the $6 billion range after ten years.

If Texas is to maintain a healthcare safety net for its most vulnerable residents -- those whom the Medicaid program was designed to serve -- lawmakers must begin addressing the program's structural problems, and seek greater flexibility from the federal government to enact the kinds of fundamental reforms outlined here.

To prevent the current Medicaid program from crowding out a larger share of the Texas budget, and to provide needy Texans with the best healthcare possible, Medicaid must undergo structural reform. The Texas Medicaid Reform Model provides an approach that would satisfy these concerns and improve the well-being of all Texans.